Outsourcing Order Fulfillment is the New Fad, Reports DHL

In Summary

While there’s no one-size-fits-all solution for order fulfillment, companies are starting to feel the heat. Many are already taking the necessary steps to evolve their distribution strategies to accommodate growing demands and marketplace seller requirements.

For some this means building towards their own fulfillment capabilities. For others, this means outsourcing fulfillment entirely. And for most, it’s a mixture of both.

What’s the right option for you?

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Things tend to change overnight in ecommerce.

One day it’s a race to offer 2-day delivery, the next, it’s all about same-day delivery. One day you’re packing items as normal, the next, Amazon decides that boxy packages just aren’t their thing.

To keep up, retailers are planning to outsource more of their online order fulfillment to third-party logistics (3PLs) partners within the next three to five years, according to a DHL survey.

Findings suggest that those who previously self-fulfilled orders are starting to throw in the towel. While 40% of companies currently insource fulfillment, six percent are planning to switch to an outsourced model. Eighteen percent will likely outsource fulfillment entirely, while 48% will pursue a hybrid approach.

The survey digs deep into the sources of heartburn for many online sellers. Amid rising customer expectations, supply chains are becoming even more complex. In particular...

1. Ecommerce has raised the stakes

As a seller, you’re dealing with constantly moving targets between various shipping windows, return options and more. Not only does your company need to clear enough space to store all of your inventory, but it must also establish a system for picking orders at break-neck speed.

"Historically, warehouses would receive an order and they ship it out 48 hours later," Jim Gher, president of retail North American at DHL Supply Chain, told Supply Chain Dive. "Today, warehouses receive an order and it's ready to ship in two hours. That's a very complex process."

If you’re a multichannel seller, you’re dealing with orders from every direction. As the demand for products shifts, inventory must be moved and transported quickly across channels.

On top of all this, urbanization is quite literally taking a toll on delivery, requiring fees to enter certain areas at certain times. Participants of another DHL report, titled The Logistics Transport Evolution: The Road Ahead, named urbanization as their biggest concern.

2. Sellers can’t just work in survival mode

Today’s supply chains must be able to adjust to sudden changes in customer demand and keep up with sustained growth. To that end, you can no longer stay afloat with a “figure it out as you go” mentality. Neither can you risk tanking your seller ratings if your business can’t handle a sudden surge of sales.

You must take a more strategic approach. The secret formula, according to DHL, requires a combination of experience, expertise and vision.

In practice, this means having a wide, flexible distribution network. It also means having a reliable fulfillment process and labor management, coupled with an understanding of how emerging technologies and industry changes will impact operations.

DHL Supply Chain President Jim Gher points out that not all SKUs are created equal. Though customers are increasingly demanding single-day shipping, "It's the more commonly ordered items, so the ones with higher velocity, [that people expect to have instantly],” he says to Supply Chain Drive. ”When somebody orders something unique or something that isn't typically readily available, they're OK waiting a couple extra days, that's OK. But if it's a common item, they really want to get it the next day."

Similarly, larger and/or higher-ticket items tend to warrant more leniency. Customers will often forgo next-day shipping in exchange for items, such as furniture, that would otherwise be cumbersome to move.

3. Customer service remains a top priority

Beyond fast shipping, customers have come to expect personalized experiences, real-time tracking, flexible ordering and return options.

Fifty-seven percent of surveyed sellers say that meeting these standards is of utmost importance. But building a distribution strategy quick enough remains a big challenge.

Many sellers are turning to third-party logistics partners (3PLs) to bring them one step closer to perfect fulfillment in the face of constant change. It appears that the most popular approach involves combining insourced with outsourced resources.

Taking a Hybrid Approach to Ecommerce Order Fulfillment

Nearly half of B2C respondents say that they’re opting to take a hybrid approach to order fulfillment. Strategies range from having a dedicated ecommerce facility for fulfilling online orders, to a multichannel facility that fulfills both online and in-store purchases from a combined inventory.

3PLs are primarily brought in for their supply chain expertise and ability to scale capabilities. They offer the infrastructure, operations and fulfillment services needed to keep up with varying customer demands. Not to mention, technology innovation and analytics to remain flexible.

While costs vary between 3PLs, companies big and small lean on 3PLs to relieve some of the burden of storing and transporting goods.